DARK AGES AMERICA

This is the Blog for MORRIS BERMAN, the author of "Dark Ages America". It includes current publications and random thoughts about U.S. Foreign Policy, including letters and reactions to publications from others.
A cultural historian and social critic, MORRIS BERMAN is the author of "Wandering God" and "The Twilight of American Culture". Since 2003 he has been a visiting professor in sociology at Catholic University of America in Washington, DC.
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December 20, 2010

The Straight Poop

The following is from John Cassidy's Nov. 29 article in TheNew Yorker, "What Good Is Wall Street?" The subtitle is: "Much of what investment bankers do is socially worthless" (Duh!).

"A clear implication of [Lord Adair Turner's] argument is that many people in the City [London] and on Wall Street are the financial equivalent of slumlords or toll collectors in pin-striped suits. If they retired to their beach houses en masse, the rest of the economy would be fine, or perhaps even healthier." [Turner is the chairman of Britain's top financial watchdog, the Financial Services Authority; he recently published an article entitled "What Do Banks Do?"]

"Last year, while many people were facing pay freezes or worse, the average pay of employees at Goldman Sachs, Morgan Stanley, and JPMorgan Chase's investment bank jumped 27%, to more than $340,000. This figure includes modestly paid workers at reception desks and mail rooms, and it thus understates what senior bankers earn. At Goldman...nearly a thousand employees received bonuses of at least $1 million in 2009. Not surprisingly, Wall Street has become the preferred destination for the bright young people who used to want to start up their own companies, work for NASA, or join the Peace Corps. At Harvard this spring, about a third of the seniors with secure jobs were heading to work in finance. Ben Friedman, a professor of economics at Harvard, recently wrote an article lamenting 'the direction of such a large fraction of our most-skilled, best-educated, and most highly motivated young citizens to the financial sector.'"

"Paul Woolley...has set up an institute at the London School of Economics called the Woolley Centre for the Study of Capital Market Dysfunctionality. 'Why on earth should finance be the biggest and most highly paid industry when it's just a utility, like sewage [excellent comparison] or gas?...'It is like a cancer that is growing to infinite size, until it takes over the entire body.'" [Woolley had a career as an investment banker.]

"Rather than seeking the most productive outlet for the money that depositors and investors entrust to them, [banks] may follow trends and surf bubbles. These activities shift capital into projects that have little or no long-term value, such as speculative real-estate developments in the swamps of Florida. Rather than acting in their customers' best interests, financial institutions may peddle opaque investment products, like collateralized debt obligations. Privy to superior information, banks can charge hefty fees and drive up their own profits at the expense of clients who are induced to take on risks they don't fully understand--a form of rent seeking."

"Perhaps the most shocking thing about recent events was not how rapidly the big Wall Street firms got into trouble but how quickly they returned to profitability and lavished big rewards on themselves. Last year, Goldman Sachs paid more than $16 billion in compensation, and Morgan Stanley paid out more than $14 billion. Neither came up with any spectacular new investments or produced anything of tangible value."

"During the credit boom of 2005 to 2007, profits and pay reached unprecedented highs. It is now evident that the bankers were being rewarded largely for taking on unacknowledged risks: after the subprime market collapsed, bank shareholders and taxpayers were left to pick up the losses. From an economy-wide perspective, this experience suggests that at least some of the profits that Wall Street bankers claim to generate, and that they use to justify their big pay packages, are illusory."

"On Wall Street and elsewhere in corporate America, insiders generally learn quickly how to game new systems and turn them to their advantage."

"There is...a blog, The Epicurean Dealmaker, written by an anonymous investment banker...In March, 2008, when some analysts were suggesting that the demise of Bear Stearns would lead to a change of attitudes on Wall Street, [the author] wrote: 'I, for one, think these bankers will be even more motivated to rape and pillage the financial system in order to rebuild their ill-gotten gains.' Seven months later, on the eve of the bank bailout, [he] opined, 'Let hundreds of banks fail. Let tens of thousands of financial workers lose their jobs and their personal wealth....The financial sector has had a really, really good run for a lot of years. It is time to pay the piper, and I, for one, have little interest in using my taxpayer dollars to cushion the blow.'"

"In September, 2009, addressing the popular anger about bankers' pay, [he] wrote [to his colleagues in the banking industry]: 'You mean to tell me your work as a ___ is worth more to society than a firefighter? An elementary school teacher? A combat infantryman in Afghanistan? [bad example!] A priest? Good luck with that.'"

"In the first nine months of 2010, the big six banks cleared more than $35 billion in profits."

"Despite all the criticism that President Obama has received lately from Wall Street, the Administration has largely left the great money-making machine intact. [Gee, there's a shock.] A couple of years ago, firms such as Citigroup, JPMorgan Chase, and Goldman Sachs faced the danger that the government would break them up, drive them out of some of their most lucrative business lines--such as dealing in derivatives--or force them to maintain so much capital that their profits would be greatly diminished. 'None of these things materialized,' [Robert] Altman [the chairman of Evercore] noted. 'Reforms and changes came in, but they did not have a transformative effect."

"Even after all that has happened, there is a tendency in Congress and the White House to defer to Wall Street...."

The NYT review of "All the Devils Are Here," by McLean and Nocera (Nov. 21), concludes: "What about the future? The next crisis probably won't be a housing bubble or an Internet craze, because those are fresh in our collective memory. But in some other corner of the economy, easy money is almost certainly beginning to feed hubris and greed. So the chances are, the devils will be coming back again."

About Me

Morris Berman is well known as an innovative cultural historian and social critic. He has taught at a number of universities in Europe and North America, and has held visiting endowed chairs at Incarnate Word College (San Antonio), the University of New Mexico, and Weber State University. During 1982-88 he was the Lansdowne Professor in the History of Science at the University of Victoria, British Columbia. Berman won the Governor’s Writers Award for Washington State in 1990, the Rollo May Center Grant for Humanistic Studies in 1992, and the Neil Postman Award for Career Achievement in Public Intellectual Activity (from the Media Ecology Association) in 2013. He is the author of a trilogy on the evolution of human consciousness–-The Reenchantment of the World (1981), Coming to Our Senses (1989), and Wandering God: A Study in Nomadic Spirituality (2000)–and in 2000 his Twilight of American Culture was named a “Notable Book” by the New York Times Book Review. Dr. Berman relocated to Mexico in 2006, and during 2008-9 was a Visiting Professor at the Tecnologico de Monterrey, Mexico City.